Fintech in the United States: quick glance

21 April 2017

The United States is the leading global economy by its GDP coming at the head of the list with $18,036 trillion reported by the World Bank for 2015, $18,518 reported for the same year by the United Nations and the IMF forecast for 2017 standing for $19,417 trillion. It is followed by European Union and China in the ‘over $10 trillion GDP’ trio, and yet North American region on the whole, clearly including the US, stands behind Asian nations in the regional investments allocated to the fintech sector projects, according to the “Pulse of Fintech – Q3 2016” report by KMPG, one of the world’s Big Four auditors. So what is the overall profile of the US fintech?

Regulation

In terms of regulation efforts taken to bring fintech startups to some steady order as well as general regulation framework for the growing sector the United States is definitely inferior to the United Kingdom and European Union, as the existing system features complex measures, instances and separate regulators for each state within the federal structure of the country, which, according to BI Intelligence report, prevents the establishment of the sound and consistent regulatory policy scheme for the fintech industry, pushing startups to manoeuvre in order to stay to some extent in compliance.

Understanding the rocky road painfully managed by the young businesses, the Office of the Comptroller of the Currency in late 2016 offered fintech startups to apply for a chart to gain the status of the special-purpose national banks. With the national charter businesses will not have to comply with tons of regulatory standards and instructions of separate jurisdictions and states, like requirement to obtain a license to engage in certain business activities. Thomas Curry, the Comptroller, underlined the need to provide ‘front gate’ for growing number of financial technology firms instead of leaving them deadlock to desperately seek for ‘back door’ to enter the financial system.

Cryptocurrency status

Bitcoin as the key specimen of the cryptocurrency in the world is categorized by the U.S. Treasury as a decentralized virtual currency and, hence, the virtual currency laws, comprising several tax rules and FINCEN prescriptions, are applied to cryptoccurencies nationwide. But generally speaking the US authorities and financial experts have no clear attitude to the cryptocurrency. Thus, as it explicitly appears from the poll held by CNBC seeking opinions and comments of the market experts, America doesn’t need cryptocurrency, because the US dollar is the future digital currency, not bitcoin.

Nicholas Colas, ConvergEx’s chief market strategist, made a remarkable note that the US dollar is anonymous, easy in use, being even easier than bitcoin, as the banknote holders don’t need a computer or even power. Other experts stress that bitcoin is not a unique product in terms of its financial attractiveness for customers and businesses, viewed as such because of low transaction processing costs, bitcoin is a result of the long developing social trend, where money is finding ways to transact with lower costs. Moreover, banks have long been holding digital funds, as accounts of individuals and companies don’t have cash, they have digital information.

Meanwhile, the US regulators in the face of the Internal Revenue Service are seeking to make all transactions made with bitcoin, Ethereum and other cryptocurrencies transparent to tax control. Last year the IRS filed an order in a federal court in California looking for data of Coinbase, largest cryptocurrency exchange service based in San Francisco, on all Coinbase users in 2013, 2014 and 2015, supporting its inquiry by possible incompliance of Coinbase users for that period with the US internal revenue regulations.

In the meantime, Douglas R. Casey, an American writer, speculator, and the founder and chairman of Casey Research, along with Albert Szmigielski and J.P. Koning are speculating about possible introduction of the US national cryptocurrency by the Federal Reserve to be known as Fedcoin. Such a vision is spurred by the meeting of 90 central bankers in Washington, D.C., last June for the conference with bitcoin experts. Perhaps, there’s a deal of sense in it, we shall see.

Crowdfunding

The United States is home for the world’s leading and most popular crowdfunding platforms such as Kickstarter, Indiegogo and GoFundMe, based in New York, San Francisco and San Diego, respectively. According to the statement of Kickstarter, the company has so far received about $2 billion in pledges made by over 9 million supporters to finance 257,000 creative projects. Last December GoFundMe reported that since its launch in 2010 the project has collected more than $3 billion dollars with the number of donors reaching 25 million.

Over the past years the US authorities have introduced some new laws to help companies fund their businesses by adopting amendments to the Securities Act 1933 within the framework of the legislation now known as the Jumpstart Our Business Startups (JOBS) Act signed into law in 2012 by the US President Barack Obama. Last year, the SEC introduced the Regulation Crowdfunding, allowing small businesses to raise under $1 million by collecting investments from anyone with the funding amount allowed to be as little as $100.

Ecommerce

Electronic commerce has always been thriving in America, as the US has given birth to such global online retailers as Amazon, BestBuy and online auction eBay. Amazon is the largest global retailer based in the Internet by its total assets and market capitalization, reaching $83.402 billion and about $430 billion, respectively. Market capitalization of Amazon has beaten even that of WalMart making it the most valuable retailer in the United States.

According to the report from the US Department of Commerce for Q3 2016, online sales in the United States totaled over $101 billion in that period, growing 15.7% on a year on year basis, and online orders accounted for 8.4% of the aggregate retail sales. The report unveils that men in America keep apace with women in terms of overall online spending, while being more likely to make purchases using their mobile devices – 22% of men against 18% of women. Besides, men more frequently use online auctions like eBay as compared to women and tend to ideally buy almost everything online more than women.

America is a place of extensive opportunities, a mother of ‘American dream’ and home for many global innovations. However, there is still a long way off for developing and shaping the fintech market in the country into something solid and significant in terms of its contribution to the overall economy and GDP, and there is much work to be done for bringing fintech startups to the trusted level of well-regulated financial corporations and institutions. Given the fast growing innovations in the financial technology plane and their rapidly gaining popularity, customers in the US may be left out of proper protection against misuse of these innovations by unscrupulous individuals wishing to make hay on naïve victims.